Conoco to sell San Juan Basin stake for $3 billion

ConocoPhillips plans to sell its stake in the natural gas-rich San Juan Basin to Hilcorp Energy for as much as $3 billion, the company said Thursday.

The Houston oil explorer said its 1.3 million acres stretching from Colorado to New Mexico will fetch $2.7 billion in cash, as well as contingent payments of $7 million per month if natural gas prices stay above a certain level. These payments, which could last for six years after the beginning of 2018, are capped at $300 million.

The deal, expected to close in the third quarter, comes on the heels of its $13.3 billion agreement to sell off Canadian oil sands assets to Cenovus Energy in late March.

Ryan Lance, chief executive officer of ConocoPhillips Inc., speaks during the 2015 IHS CERAWeek conference in Houston, Texas, U.S., on Monday, April 20, 2015 (Photographer: F. Carter Smith/Bloomberg)

Related: Conoco to sell Canadian oil sands assets

And like that deal, the San Juan Basin sale is expected to cut the company’s exposure to a resource – U.S. natural gas – that has become far less profitable in recent years. Its assets there produce some 124,000 barrels of oil equivalent a day, but nearly 80 percent of that is natural gas. It collected about $200 million in cash from operations there last year.

ConocoPhillips said it expected to write down the value of the assets in the second quarter, recording an impairment charge. At the end of last year, the assets were worth $5.9 billion.

In a statement, ConocoPhillips CEO Ryan Lance said the deal would improve the company’s balance sheet and return cash to shareholders.

After the San Juan Basin and Canadian oil sands transactions close, the amount of North American natural gas the company extracts will fall from 20 percent to 10 percent of  its energy production mix, while oil climbs from 35 percent to 45 percent. International gas will move up from 20 percent to 30 percent of its energy mix, while oil sands falls from 15 percent to 5 percent.

Its operating costs are expected to drop from $6 billion to $5.3 billion.

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